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S&P points to 'weak management' at RSA following downgrade

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Standard & Poor’s has attributed a succession of profit warnings at RSA culminating in the resignation of chief executive Simon Lee for its decision to downgrade its ratings on the company and its core subsidiaries to 'A-' from 'A'.

The ratings agency has claimed that recent events at RSA, which have included a strategic review after financial irregularities were uncovered in its Irish arm, indicate "some weakness in management and governance generally".

S&P's has also lowered RSA's strategically important subsidiaries to 'BBB+' from 'A-', the ratings on the firm's hybrid capital issues to 'BBB' from 'BBB+' and the rating on its commercial paper to 'A-2' from 'A-1'. The ratings remain on S&P's credit watch, where implications have been revised to ‘developing'.

An S&P statement read: "We believe the CEO's resignation following further reserve strengthening in Ireland and downward revision of profit expectations reflects a weakening in RSA management generally, notably in terms of consistency of strategy and operational effectiveness; specifically, it raises questions about the company's capacity to execute plans to strengthen capital and earnings.

"We have accordingly revised our assessment of RSA's management and governance to fair from satisfactory and therefore removed the uplift in the ratings on RSA.

"We maintain our lower adequate assessment of capital adequacy despite the announced reserve additions and earnings guidance. We continue to expect management actions to enhance capital through 2014-2015. However, the downward revision of earnings forecasts makes our view of RSA's capital adequacy more dependent than before on implementing these actions to avoid a lower rating."

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